Uncategorized

I like it just fine because my rental properties are humming along nicely. In fact, by my calculations I made $8061 in cash flow in just the last 6 months.

Let’s take a look!

A Quick Look Back

I am the proud owner of 3 properties I have never seen that are located thousands of miles away.

Here is how it went down:

July 2011 – Bought Atlanta area property for $20k investment

July 2014 – Bought Memphis area property for $24k investment

May 2017 – Cash out refinance on Atlanta property to pocket $36k (why and details)

September 2017 – Bought Memphis area property for $26k investment (search and details)

I think of my portfolio as a snowball gaining 30% more mass each year – yes, I am getting a 30% a year return. My role is to keep it moving with as little as work as possible. I’m pretty hands-off.

Added together, my property managers now collect $3185 in rent each month. My mortgage payments total $1918. With ~10% to the property manager, I’m clearing $950 a month in cash flow if all goes well!

Let’s drill down and look at each individual property.

Rental #1 Numbers – Atlanta

Just crushing it on the appreciation!

I took the average of Zillow, Trulia, and Redfin – according to those estimates this property along appreciated $16,200 in 2018. Wow.

These returns are pretty impressive, but they are largely on paper (excluding my cash out refinance). You see, when the market turns over the next couple years, some of the appreciation will quickly disappear. That’s ok because there is more to real estate – don’t forget about the cash flow!

The cash flow is back up too. The tenant has been in there for the full 7 and a half years I have owned it, which is great news, but unfortunately they fall behind on rent occasionally.

In 2017 they were behind, so 2018 when they got caught up, my cash flow numbers are doing great!

24.4% compounded annual growth – bada bing, badda boom!

Rental #2 Numbers – Memphis

Steady Eddie.

Appreciated another $2300 over the last 6 months. The best cash flow of any property at $4131.

Oh and I haven’t mentioned a couple other categories too – the tenant paid down the mortgage for me $1228. And I received another $931 in tax benefits according to my calculations (long story, see previous articles).

The all-star property #1 purchased at the depth of the recession has a 24% compounded annual growth rate over 7.5 years. Well this one isn’t too far behind: 21% CAGR over 4.5 years!

Rental #3 Numbers – Memphis

Ok you ready for a dud?

According to 2 of the 3 price estimating websites, this one dropped a ton in the last 6 months. Why? I have some ideas…

First, these are quick estimates. You really have to look at comps to get an accurate price estimate. Luckily, those websites include some nearby “recently sold” properties…

And those time seem to indicate normal prices. One a block away for $125k, not $83k…

You essentially have two drastically different property prices in the area – old ones with no work done over the years or flipped properties. Any flipped property that had a ton of work done will have a higher price tag (like mine).

My best guess is there is some ~1 year period where the last sold price really sets the price estimate. So I don’t believe there is anything drastically different now!

I’ll go with those numbers anyway. Down $12k in price, $4k in cash flow. Ouch.

Overall Portfolio Numbers

Net present value just hit $100k. That is impressive. Basically this is the amount OVER a “100% safe” investment like a CD returning 2% every 6 months (which is still better than you’ll actually find in a CD despite interest rates jumping up recently).

That is incredible to me. It certainly is worth the minimal effort it takes to learn this stuff, acquire the properties, and the occasional phone call.

Here is the half year cash flow breakdown:

The Highest Highs

I know I shouldn’t get too excited though – I’ve caught 7.5 years of a huge bull run of the market. I’m not a genius investor.

Let’s say I have a paper “drop” in value of 30% on my property values overnight. That should would suck, but I’d keep the properties and they would still cash flow.

What would that do to the numbers? Instead of a 29.9% yearly return, it would drop all the way down to 9% per year. Temporarily. And if it took a year to drop 30%, but with the other benefits of cash flow, paying down the mortgage, and tax benefits? 12% yearly return.

That’s better than what people expect out of the stock market! Then things will be back on the upswing before you know it, again raking in huge returns.

What have I been spending my time on? I still have my day job of kids coding tutoring and then spent much of 2018 creating an app in the environmental space. It is called Pledge Balance – the basic idea is that a lot of people care about the environment but don’t have a simple action to take. It is a pledge to balance the negative impact of your driving and flying with a tiny payment that goes 100% to the ?. My drive today was 17¢ to balance, which is invested in projects like planting ?. Just launched in beta for iOS, so I’m excited to see where it goes!

There is no shortage of real estate gurus out there – all kinds of fancy training and coaching programs that promise a path to riches.

They will share their secrets for only 4 payments of $3,999. And you can have an ongoing coach for only $6,999 per year.

As crazy as it sounds, this is actually attractive to plenty of folks. They want to get into real estate investing but are lazy so don’t want to educate themselves. They want someone to tell them exactly what to do.

The Guru Way

It starts with a conference or short event – heavy on motivation and light on details.

In fact, most of it is telling success stories – whether the namesake’s experience or someone else they claimed learned through the program.

Oh you want details? Well lucky you, they are running a promotion for everyone who is at this conference. You can join the hands on training program for just $17,999!

Then when you are done with the program you are hit with reality: it still requires action.

If you weren’t that type of person going in, you aren’t coming out either.

High Profile Examples

People were dragged along and upsold all the way up to $35k. The results vary. Of course a few are successful. And there are many more who never make a single dollar.

An even bigger example is the Rich Dad education seminars. Huge scale. Free 1 day seminars are held all over the country, followed by a $1k three day seminar, all which sets up for a $12k to $44k payment for their advanced material. Oh and they help you raise your credit limit so you can put it on your credit card.

If you want to be sick, watch this video that secretly records a three day seminar with constant upsells:

The Rental Mindset Way – Get Educated Wisely

You can get most of your education for free. It’s important to make sure the education isn’t passive – you need to talk to people and take action.

By reading only 2 books and listening to 20 hours of podcasts, you have just enough knowledge to move on to the next step.

You will be able to hold conversations with people will a lot more experience. Admit you’re a beginner and learn from them.

After a series of conversations with everyone from investors to lenders to property managers, you will be ready for the next step. It’s the hardest one.

Get started! Purchase a rental property in your name while limiting the risk as much as possible. You will learn way more by doing.

Which Isn’t to Say – Don’t Pay Anything

Don’t be the guy who is thinks everything should be free either. Small investments can really pay off.

Take books for example – they might cost as much as $15. Yes you can probably find all the information somewhere online for free. But purchasing a book will save you time and deliver one consistent message.

A low priced event is a great way to meet people. Just be careful that it isn’t with an organization that will hold back information and entice you to sign up for more training.

I went to Jason Hartman’s Meet the Masters weekend. I already knew a lot of the information presented (although there was plenty I didn’t know about lending and taxes), but the real value was meeting others who invest in turnkey rental properties.

One of my other goals was to see first-hand how reputable the company was. I made an in-person connection with the investment counselor I worked with in my first properties.

Add it up and I spent $500 on my education. Could it have been free? Yes. But it was $500 well spent and gave me the confidence to move on to actually purchasing a property.

If there are events less that $1000 that you would like to attend, and it will push you towards your first investment, go for it! Just make sure there isn’t an up sell.

If there is a course that is less than $1000 and will provide the spark needed to get started, go for it! Just don’t expect it to do everything for you. (I’m excited to hear people’s results from Afford Anything’s upcoming class).

Be smart about your education and don’t fall for the guru trap.

How did you go about your investing education? Are there any books or podcasts you recommend?